1.818J/2.65J/3.564J/10.391J/11.371J/22.

811J/ESD166J
SUSTAINABLE ENERGY
Prof. Michael W. Golay
Nuclear Engineering Dept.
1
ECONOMIC FEASIBILITY AND
ASSESSMENT METHODS
2
PROJECT LEVEL ECONOMIC ANALYSES
LECTURE OUTLINE
• Introduction – Levels of Analysis
• Time Value of Money and Discounting
• Inflation
• Economies of Scale and Learning (serial production)
• Treatments of Uncertainty
• Externalities
3
SCHEMATIC OF OUR POINT OF VIEW
FOR ECONOMIC ANALYSES
Mandated
Abatement Devices
Goods and
Domain of
Project Internal
Economic
Assessment:
“The System”
Emissions and Other
Services
Harmful Impacts
(Externalities):
Taxes or Fees
Subsidies,
and Services
Products
Tax Breaks
For Sale
Conceptual System “The Surroundings”:
Boundary For Purposes The External World,
of Economic Analysis The Commons
4
HIERARCHY OF ENERGY MODELS
PROJECT
ASSESSMENT
(purview of
this chapter)
PLANNING
PROJECTIONS
WORLD ENERGY/ECONOMY/ENVIRONMENT
MODELLING
General Circulation Models (GCMs)
UTILITY SYSTEM
NATIONAL/REGIONAL
ENERGY SYSTEM
GLOBAL ENVIRONMENTAL IMPACT PREDICTION:
Increasing uncertainty and complexity,
Decreasing maturity of model development,
Increasing sociopolitical import,
Recency of scholarly attention
5
LEVELIZED ELECTRICITY GENERATION
(BUSBAR) COST PROJECTIONS
(at 10%/yr Real Discount Rate)
6
Source: Figure 5.3 in Tester, et al. Sustainable Energy: Choosing Among Options. Cambridge, MA: MIT Press, 2005.
Courtesy of The MIT Press. Used with permission.
HOW TO CALCULATE LIFETIME LEVELIZED
COST AND/OR RATE OF RETURN
ses -
7
ILLUSTRATIVE BEHAVIOR OF
THE EXPONENTIAL FUNCTION
0
0
x
y = e
x
x is +
Exponential Growth
x is ­
Exponential Decay
0
0
log y
or
ln y
x
Straight Line
1.0
The exponential function applies to processes where the % increase
in y is a fixed fraction of the % increase in x.
Pragmatically:
Just push the e
x
button on your scientific calculator
or
Use the exp(x) function in most computer languages.
8
HOW TO CALCULATE LIFETIME LEVELIZED
COST AND/OR RATE OF RETURN, Continued
9
PRESENT WORTH OF A UNIFORM
DISCRETE SERIES OF CASH FLOWS
10
PRESENT WORTH OF A UNIFORM
DISCRETE SERIES OF CASH FLOWS,
Continued
11
LIFETIME-LEVELIZED BUSBAR
COST OF ELECTRICAL ENERGY*
*Note that these costs represent only the cost of generating the electricity, i.e., excluding
transmission and distribution. These costs are lifetime-average (i.e., "levelized") costs for
a new plant starting operations today.
12
LIFETIME-LEVELIZED BUSBAR
COST OF ELECTRICAL ENERGY,
Continued
13
LIFETIME-LEVELIZED BUSBAR
COST OF ELECTRICAL ENERGY,
Continued
14
T
A e
− it
dt = P
T
Eq. (1)

o
Thus
i
A =

1− e
− iT

P
T
Eq. (2)
In the limit of large T
A ⇒ iP
T
Eq. (3)
15
Consider a uniform annual rate of expenditure, $/yr, but escalated
at y/yr over a period T, discounted at x/yr.
A e
yt
A
t
0
dt
T
Levelizing to find the equivalent annual rate A
L
T T
A
L
e
− xt
dt =

A e
yt
e
− xt
dt
Eq. (4)

o o
Then
T
e
− (x − y)t
dt
|
x
|
1 − e
− (x − y)T
A
L
=

o
Eq. (5)
A

o
T
e
− xt
dt
=
\

x − y
.
|
1 − e
− xT
16
Expand the exponentials as Taylor series and retain terms through
second order, which yields to first order:
A
L
=
1 −
(
x−
2
y
)
T + ...
≈ 1 +
y
T + ...
Eq. (6)
1 −
x
A
T + ...
2
2
which is the multiplier used on today’s O&M and fuel costs used
to calculate the Lifetime-Levelized Busbar Cost of Electrical
Energy (slides 10 through 12).
17
F = e
xT

o
T
A e
yt
e
− xt
dt
Eq. (7)
Integration yields

1− e
yT
e
− xT

F =
(
A T
)
e
xT

(
x − y
)
T

Eq. (8)
and series expansion gives to first order
(x − y)
T

|
1+ x T
|
F =
(
A T
)

1−
2
Eq. (9)
or
x + y
T

F =
(
A T
)

1+ ≈
(
A T
)

1 +
x + y

T

2

2

which is the desired relation.
18
For the examples in slides 10 through 12, we can compare the
"exact" exponential relations (Eqs. 5 and 8) to their linearized
versions (Eqs. 6 and 9):
(1) Let T = 30 yrs, y = 0.04/yr, and x = 0.09/yr
Then exact 1.50
Whereas
(
1 +
yT
)
= 1.6; 6.7% high.
2
(2) Let T = c = 5 yrs, y = 0.04/yr, and x = 0.09/yr
The exact = 1.39

Whereas

1 +
x + y

c
= 1.37; 1.4% low.
2
19
SAMPLE PROBLEM
Question: In some jurisdictions, owners must contribute to a
separate interest earning account—a so-called sinking fund— to
provide a future amount sufficient to decommission a nuclear
power plant at the end of its useful life. Working in constant
dollars, calculate the uniform rate of contributions in dollars per
year at a real interest rate of 5% per year, which will total 300
million in today's dollars 30 years from now.
Specimen Solution
We have the cash flow time diagram:
F = $300 x 10
6
t, years
A $ / yr
0 dt
20
Question: Suppose instead that the utility were required to deposit
a sufficient amount as a single up-front payment.
Answer: We merely need to compute the present worth of 300 M$
@ 5% yr for 30 years.
300 • e
-0.05(30)
P =
= 66.94 million dollars (in today's, i.e. constant, dollars)
21
Following the algorithm recommended in slides 5 and 7, we
equate present worths (in millions of dollars):
30
A e

0.05t
dt = 300 e

0.05(30)

0
carrying out the integration gives:
A
(1 − e
− 0.05(30)
) = 300e
− 1.5
0.05
or
A =
(300)
(
0.05
)
= 4.31 million dollars per year
(
e
1.5
− 1
)
which is only a few percent of the annual carrying charge rate
on a plant costing on the order of two billion dollars.
22
Question: What would the actual fund accrue in t = 30 year
dollars if the rate of inflation anticipated is 3% per year.
Answer: The market interest rate would then be 5 + 3 = 8% yr
and the future worth:
66.94 e
0.08(30)
F =
= 738 million dollars
23
A simple example will help illuminate this issue. Consider a
generating facility having an initial capital cost I
0
$ and a
lifetime of T years over which O&M costs, initially at the rate
A
0
$/yr, escalate exponentially with time at the rate of monetary
inflation, y per yr, i.e.,:
A t ( ) = A
o
e
yt
Eq. (10)
Discount rates are:
Constant dollars x = x
0
per year
Current dollars x = x
0
+ y per year
Furthermore, we neglect the effect of taxes and hence take x as
the cost of borrowed money for our capital investment.
Then the lifetime levelized O&M cost is:
T T
A
L

o
e
− xt
dt = A
o
e
yt
e
− xt
dt
Eq. (11)

o
24
From which:
A
L
|
x
|
|
1 − e
− (x −y)T
|
A
o
=
|

1 − e
− xT
|
Eq. (12)
\
x − y
.
\ .
Which, recall, is the same as Eq. 5; it has the asymptotic limits,
which we upon occasion have employed in other instances:
For very long T (xT>>1)
|
A
L
|
x


Eq. (13)
\
A
o
.
|

x − y
For short-to-intermediate time horizons, series expansion gives
to the first order (see Eq. 6):
| A
L
|
| ⇒

1 +
yT
\
A
o
.
T
2
+ ...

Eq. (14)
25
For a capital expenditure at time zero having zero salvage
value, the annual carrying charge rate (capital recovery factor)
is given by:
x
φ =
1 − e
− xT
per year Eq. (15)
26
SIMPLE PAYBACK
Although much denigrated by the sophisticated analyst, the
"simple payback" approach is quite common because of its
readily understandable nature. One merely has:
T
PB
, payback time,years =
initial additional capital cost,
Eq. (16)
incremental annual savings/yr
Thus spending an extra dollar now to save twenty cents per year
thereafter corresponds to a five-year payback.
Note that neither discount rate nor rates of future cost escalation
are involved. So long as simple and similar cash flow patterns
apply to all alternatives, and the time horizon is short, the simple
payback method is not terribly misleading. It has the
considerable merit of being immediately comprehensible to the
general populace.
27
There is no hard and fast criterion of acceptability, but
payback times of three or four years or less appear to be the
order needed to inspire favorable action by the proverbial
"man in the street". For the simple case of a capital increment
at time zero followed by uniform annual savings ad infinitum,
one has the rate of return:
100
i =
T
PB
%/yr, or 20%/yr in our example above Eq. (17)
28
TREATMENTS OF UNCERTAINTY
Four approaches are common:
(1) Poll the experts and report their consensus plus and minus
absolute (or relative percentage) spread on values for estimates
of the subject genre.
(2) Carry out a Monte Carlo analysis. Repeat the calculation many
times using randomly selected input variables from probability
distributions characterizing their likely uncertainty, and
compute the results for the output parameter. From this
compute the standard deviation.
(3) Use a decision tree approach—which amounts to a crude Monte
Carlo calculation in which variable probabilities are confined to
only a few outcomes.
(4) Propagate and aggregate uncertainties analytically for the
governing equations under simplifying approximations such as
random independence of variables which are characterized by a
normal (Gaussian) probability density function.
A brief sketch of the latter three approaches follows, beginning with
the analytic. Clearly we can not do justice to any of these topics here,
but again a minimum useful level of understanding is the goal.
29
ANALYTIC UNCERTAINTY PROPAGATION
For independent variables distributed according to the familiar
normal or Gaussian probability density function (the familiar
bell-shaped curve) the uncertainty is readily and completely
characterized as a standard deviation σ, from the mean, e . A
randomly selected large set of data will fall within plus or minus
one sigma of the mean 68% of the time, and within ± 2σ, 95% of
the time. Furthermore, the cumulative variance σ
2
in a
dependent parameter e can be estimated from that for several
uncorrelated independent variables x
i
as follows:
2
=

|

∂e
|
2
2
Eq. (18)
σ
e
|
σ
x
i
i
\ ∂x
i
.
30
A simple example may help.
As presented in slides 10 through 12, the busbar cost of
electricity is made up of three components, representing capital,
operating and fuel costs:
e = e
I
+ e
O & M
+ e
F
Eq. (19)
where for fossil fuels
0.34f
e
f
=
Eq. (20)
η
where f is, for example, the cents per 1000 SCF paid for natural
gas. We recognize that fuel cost is the principal uncertainty in
estimation of the busbar cost of electricity from (for example) a
combined cycle gas turbine (CCGT) unit.
Applying Eq. 18 in a conveniently normalized form one has:
| σe| | e
f
|
|
σ
f
|
2
Eq. (21)
|
2
= |
2

|
|
\
e
. \
e
.
\
f
.
31
THE MONTE CARLO METHOD
Refer to slides 33 through 36. Given a normalized probability
density function (PDF), P(z), one can integrate from -∞ to z to
obtain the cumulative distribution function CDF, P≤ z, which
gives the probability of a variable being z or less; or if one
prefers, integrate z to + ∞ to obtain its complement CCDF, P ≥
z. Then in Step 2, choose a random number between 0 and 1
and use the CDF(z) to select a value for z; repeat this for all
independent variables to create an input data set. In Step 3 use
this set in the governing analytic relation to compute a value of
the dependent parameter (for example, busbar cost of
electricity). Repeat Steps 2 and 3 a large number of times (e.g.,
1000).
32
Then the expected value
e
and its σ can be calculated from the
accumulated output set as follows
N

e
j
j=1
e=
N
Eq. (22)
and for large N
N

(
e
j
− e
)
2
σ
2
=
j=1
Eq. (23)
N N − 1) (
33
EXAMPLE OF COST FACTORS THAT CAN BE
COMBINED USING THE MONTE CARLO METHOD
Capital Costs,
C
Operations and
Maintenance
Costs,
O
Cost
E = C + F + O
Fuel Costs,
F
min
C
max
C
min
F
max
F
min
O
max
O
Total Energy
C F O
34
OUTLINE OF MONTE CARLO APPROACH
35
OUTLINE OF MONTE CARLO APPROACH,
Continued
36
OUTLINE OF MONTE CARLO APPROACH,
Continued
37
OUTLINE OF MONTE CARLO APPROACH,
Continued
38
OUTLINE OF DECISION TREE APPROACH
39
OUTLINE OF DECISION TREE APPROACH,
Continued
40
ECONOMY OF SCALE AND
LEARNING CURVE
These two concepts are firmly established semi-empirical
precepts of engineering economics, and are central to the costing
of most energy supply and end-use technologies (and a wide
variety of other industrial systems).
Economy of scale refers to the general proposition that "bigger is
cheaper" per unit output. In quantitative terms:
|
C
i
|
=
|
C
o
| |
K
i
|
n − 1
; or
C
i
=
|
K
i
|
n
Eq. (24)
\
K
i
. \
K
o
. \
K
o
. \
K
o
.
C
o
where
C
i
, C
o
= cost of size i and reference (o) units, respectively
K
i
, K
o
= size or rating of subject units
n = scale exponent, typically ~ 2/3
41
Thus if a 50 MWe power station costs 2000 $/kWe, a 1000 MWe
unit would be predicted to cost:
2
$
|
|
1000
| |
C
1000
.
|
=
|
2000
(
−1
)
=
737$/lWe ,
3
\
K
1000
\
kWe
.
\
50
.
a substantial savings. This explains the steady increase in unit
rating for steam, gas and water turbines to meet increased
demand as time progresses, as shown in slide 6.
A simple example can be used to motivate n~2/3. Consider a
spherical tank whose cost is proportional to surface area; then
the surface-to-volume (i.e., cost-to-capacity) ratio is
C S 4πR
2
3 1
= V
n−1
~ = = ~
K V
4
πR
3
R V
1/ 3
3
42
OUTPUT OF POWER DEVICES:
1700-2000
43
Graph removed for copyright reasons. See Figure 5.4 in Tester, et al. Sustainable Energy: Choosing Among Options.
Cambridge, MA: MIT Press, 2005.
The learning curve effect applies to the savings achieved by
sequential mass production of a large number of identical units
(same size or rating) i.e., “more is cheaper.” Automobile
engines are a good example.
Experience shows that one can often characterize the cost of the
Nth unit as follows:
C
N
= C
1
• N
−α
Eq. (25)
with
f
| |
ln
100
|
α = −

ln 2
|
\ .
where C
1
, C
N
= cost of first and Nth units, respectively
f/100 = progress ratio: second (or 2
n
th) unit is f percent
as expensive as first (or 2
n-1
st) unit; a typical
value is ~85%
44
Thus, if the first first-of-a-kind production run photovoltaic
panel costs 200 $/m
2
, the last unit of a production run of 10
4
units would be predicted to cost:
C
10
4 =
(
200$ m
2
)
10
−4α
and
α = −
ln 0.85
ln 2
|
\

|
.
|
= 0.234
so that
C
10
4
= 23 $/m
2
again a large decrease. Slide 46 illustrates this phenomenon for
some technologies of current interest.
45
In addition to the unit cost of the nth unit in a mass-production
run or in a sequence of increasing size, the average unit cost of
all n items, first through last, is also of interest.
For a learning curve sequence the average cost is, to a good
approximation:
¦
N
α
1 1
¹
¹
1+α

1 −
N
1+
α

+
2N
|1+N
α
|
`
Eq. (26a) C
1, N
= C
1
´
)
with a maximum error of -1.5% for α = 1/2(f = 71%) and N = 2;
the error decreases as N increases and for larger f.
46
For a sequence of N units each a factor of S larger than its
immediate precursor:
|
I
|

I
| I | | S
n
N
− 1| | S − 1 |
\
K
.
|

K
= |
1

\
K
. \
S
n
− 1
.
|
\

S
N
− 1
.
| Eq. (26b)
where as before, n is the scale exponent.
These relations provide estimates of the total expenditure for
subsidized installations before a competitive product is
produced.
Note that for typical values of n and f, it generally does not pay
to reduce size to increase number to satisfy a fixed total
capacity.
47
TECHNOLOGY LEARNING CURVES
Cost improvements per unit installed capacity, in US(1990)$
per kW, versus cumulative installed capacity, in MW, for
photovoltaics, wind and gas turbines.
48
Graph removed for copyright reasons. See Figure 5.4 in Tester, et al. Sustainable Energy: Choosing Among Options.
Cambridge, MA: MIT Press, 2005.
FORD MODEL T: PRICE vs.
49
CUMULATIVE PRODUCTION, 1909-23
10,000 100,000 1,000,000 10,000,000
1,000
2,000
4,000
6,000
8,000
10,000
A
V
E
R
A
G
E

L
I
S
T

P
R
I
C
E
CUMULATIVE UNITS PRODUCED
(1978 dollars)
1909
1910
1911
1912
1913
1914
1915
1916
1918
1921
1920
1923
Figure by
MIT OCW.
PHOTOVOLTAIC MODULES: PRICE vs.
CUMULATIVE PRODUCTION, 1975-93
50
Figure by MIT OCW.
1
1
2
2
4
4
6
6
8
8
10
10
20
20
40
40
60
60
80
100
100
200 400 1000
D
O
L
L
A
R
S

P
E
R

W
A
T
T
CUMULATIVE MEGAWATTS PRODUCED
1975
1976
1977
1978
1979
1980
1981
1983
1985
1986
1987
1991
1993
(1993 dollars)
Economy of size and learning curve effects, while dignified by a
mathematical formulation, are by no means "laws of nature" of
the same credibility as the Carnot efficiency equation. Hence,
one must be aware of several caveats regarding the use of such
projections:
• At some point, size increases may require switching to new
materials—for example, to accommodate higher stresses, in
which case the economy-of scale relation has to be re-
normalized.
• Larger size may lead to lower reliability (i.e., capacity
factor) and therefore net unit cost of product may increase,
i.e., there may well be dis-economies of scale.
• Learning curves apply to replication of the same design, by
the same work force, in the same setting (e.g., factory), all
of which are likely to change in the long run.
51
• Important factors such as materials resource depletion or
technological innovation are not taken into account in an
explicit manner.
• Shared costs of many units on a single site are also
important: e.g., multi-unit stations save considerably on
administrative infrastructure costs.
• Often both effects operate in series or parallel
combination. For example, in nuclear fission and fusion
reactor development, construction of a sequence of
pilot/demonstration units of increasing size is usually
envisioned, followed by replication and deployment of a
fleet of identical large commercial plants.
52
WAYS OF INTERNALIZING
EXTERNAL COSTS
Definition of Externality: A cost of production of a good
imposed upon an (external) party without corresponding
benefits or compensation (e.g., costs of air pollution-related
illnesses endured by persons downwind from a factory
releasing toxic gases).
• Requiring Removal of External Effects (remediation &
restoration)
• Requiring Prevention of External Costs (regulation)
• Requiring Compensation to Affected Parties
53
A GENERIC LIFECYCLE ROADMAP
FOR EXTERNALITIES ASSESSMENT
FACILITY
CONSTRUCTION
DECOMMISSIONING
FACILITY
& RESTORATION OPERATIONS
Fuel
Extraction
and
Processing
Transportation
Combustion
and
Conversion in
Power Plant
EXAMPLES OF
PRINCIPAL EXTERNALITIES
Tailings, water pollution
Aesthetic, Habitat Modfication
Accidents, Road/Rail Congestion
Emissions: Gas, Liquid, Solids, Radionuclides
Effects on Flora, Fauna (Agricultural and
Natural), Human Health
Accidents, Thermal Pollution, Noise
and
Distribution
Local End Use
Aesthetics
Electrocution
Releases to Environment
Aesthetics
Transmission
Waste Disposal
Transportation
E&M Health Effects
Accidents, Toxic Emissions
Many of the Above
54
SCHEMATIC OF OUR POINT OF VIEW
FOR ECONOMIC ANALYSES
The Commons
External World,
Regulations*:
Mandated
Project
Internal
Economic
Assessment
Abatement Devices
- $
+ $
“Crud”
(Externalities)
Taxes or Fees,
e.g., 100 $/ton C
for CO2
Subsidies,
Tax Breaks
* De-regulated ° Unregulated
55
PROCEDURE FOR ASSIGNING COSTS
TO EXTERNALITIES
56
RANGE OF EXTERNALITY STUDY
ESTIMATES (Including Global Warming)
57
Graph removed for copyright reasons. See Figure 5.11 in Tester, et al. Sustainable Energy: Choosing Among Options.
Cambridge, MA: MIT Press, 2005.
....
REPRESENTATIVE EXTERNALITY
ASSESSMENT INPUTS
58
REPRESENTATIVE EXTERNALITY
ASSESSMENT OUTPUT
59
REPRESENTATIVE EXTERNALITY
ASSESSMENT OUTPUT, Continued
60
SAMPLE CALCULATION
Consider a coal plant having the following characteristics:
Thermodynamic efficiency 0.36 MWe/MWth
Coal heating value 0.35 MWd (thermal)/MT coal
Coal carbon content 0.7 MT carbon/MT coal
Lifetime levelized cost at the 6.5¢/kWhre
busbar of e lectricity produced
The added cost of product due to a carbon tax of $100/metric ton
of carbon is then:
e
c
= (100$/MTC)(100¢/$)(0.7 MTC/MT coal)*
(MT coal/0.35 MWDth)(MWth/0.36 MWe)*
(1 d/24 hr)(1 MWe/1000 kWe)
= 2.3¢/kWhre, a 35% increase, which is quite significant,
and would virtually eliminate the
construction of new coal plants and hasten
the shutdown of existing units.
61
SUMMARY OF EXTERNALITY VALUES*
EXPRESSED IN cents/kWh GENERATED
(x10 = mills/kWh)
Exisiting Power Plants New Power Plants
Existing
Unscrubbed
Existing
Scrubbed
CTU #2
Oil
CC
Firm AFBC IGCC
Valuation Method Coal Plant Coal Plant 0.3% S Gas 0.5% S 0.45% S
1. Ontario Hydro 0.41
2. Pace University 10.3 4.0 2.6 0.77 2.6 2.1
3. Massachusetts 7.7 5.2 4.0 1.4 3.6 3.0
DPU
4. CEC In-State 30.3 10.9 5.3 0.6 5.9 3.8
5. CEC Out-of-State 3.8 2.2 1.5 0.4 1.4 1.0
6. New York PSC 2.5 1.3 0.8 0.3 0.7 0.5
7. Nevada PSC 7.9 5.3 3.9 1.4 3.7 3.0
Compare to Total Busbar Cost of ~50 mills/kWh
* Excluding CO
2
62
“OFFICIAL” FIGURES FOR THE
VALUE OF HUMAN LIFE*
Cost in ...of which
1,000 ECU Market
Country (1989) ... Cost Method Source
Belgium 300 300 Gross production costs & losses Hansson and
Marckham (1992)
Denmark 600 200 ” ”
Germany 630 630 ” ”
Finland 1,600 540 Willingness to pay ”
France 255 -- Life expectancy ”
United Kingdom 890 265 Willingness to pay ”
Luxembourg 330 330 Gross production costs & losses ”
Netherlands 85 85 Net production costs & loses ”
Norway 340 340 Gross production costs & loses ”
Austria 545 545 ” ”
Portugal 12.5 12.5 ” ”
Sweden 1,070 130 Willingness to pay ”
Switzerland 1,665 560 Social willingness to pay ”
Spain 145 97 Gross production losses ”
United States 2,350 495 Willingness to pay ”
United States 441 441 Gross production costs & losses Le Net (1992)
France 344 315 ” ”
Australia 407 407 ” ”
New Zealand 155 to 451 122 to 181 ” ”
* These percentages naturally also include the cost of material losses and injuries.
63
OVERLAP BETWEEN RANGES OF
ENVIRONMENTALLY RELATED DAMAGE COSTS FOR
SELECTED ELECTRICITY SUPPLY TECHNOLOGIES
Source: A. Stirling, “Regulating the Electricity Supply Industry by Valuing Environmental
Effects,” Futures, Dec. 1992, pp. 1024-47.
64
Graph removed for copyright reasons.
ENERGY BALANCE FOR ETHANOL –
INPUTS FOR 1 GALLON ETHANOL
Notes:
(1) Analysis applies to typical US Midwest conditions and practices;
current technology throughout
(2) Production costs include fertilizer, operation of farm machinery
(3) For comparison, gasoline has ~120,000 BTU/gal
(4) In Brazil, using sugarcane and low-tech agriculture, the output/input
ratio can be as high a 3
(5) For comparison, gasoline’s output to input (for oil production,
transportation and refining) is about 7
(6) In March 2000 the US EPA announced it would ban the gasoline
additive MTBE and replace it with ethanol
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APPROXIMATE ENERGY BALANCE FOR
1000 MWe NUCLEAR POWER PLANT
Basis:
(1) 1000 MWe PWR operated for 30 yrs at 80% capacity factor
(2) Fuel enriched by gas centrifuge, 0.3 w/o tails
(3) Conversion between thermal and electrical energy: 3 kWhrth =
1 kWhre, in fuel cycle steps
(4) “Fuel” includes startup core, all front and back end steps
66
The main themes of this chapter are conceptually simple but
devilishly complicated when it comes to the details of their
practical application. Points to emphasize are:
• Money has a time value because of interest earned or paid,
which requires that all cash flows be discounted from their
point of occurrence in time: Slide 5 summarizes the basic
conceptual framework. Once this is taken into account,
options can be compared on a consistent basis. A simple
but adequate way to do this using continuous compounding
has been presented, leading to the concept of, and a
prescription for, the single-valued levelized cost over the
life of a project (slides 10 through 12). Market-based
accounting, which includes monetary inflation, and
constant dollar/real interest rate accounting, which excludes
inflation are contrasted.
67
• Costs not reflected in the market price, "externalities",
must be considered to account for detrimental effects on
the common environment and public health, an important
step in ranking technology and public policy options
according to their true total life-cycle cost. The elements
of an input-output analysis for this purpose are sketched.
• Economy of scale and learning curve effects are noted:
bigger is cheaper, and so is more of the same.
• The universal need for an explicitly quantitative
recognition of uncertainty is stressed.
• Conceptual difficulties with a purely monetary measuring
system motivate moving beyond the methods of this
chapter in the formulation of actual decision-making
processes which reflect stakeholder concerns and offer
greater likelihood of decision process convergence.
68

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